A Study on CAMEL concept of the co operative bank soceity

CHAPTER - I

1.1 INTRODUCTION TO THE STUDY

1.1.1. Introduction

The acronym "CAMEL" refers to the five components of a bank's condition that are

assessed: The expansion of the first letter in CAMEL are given below. The banks

performance are rated by using the following.

Capital adequacy

Asset quality

Management

Earnings

Liquidity

A sixth component, a bank's Sensitivity to market risk , was added in 1997.

1.1.2. Capital Adequacy

Capital adequacy ultimately determines how well financial institutions can cope with

shocks to their balance sheets. Thus, it is useful to track capital-adequacy ratios that take into

account the most important financial risks—foreign exchange, credit, and interest rate risks—

by assigning risk weightings to the institution’s assets.

A Capital Adequacy Ratio is a measure of a bank's capital. It is expressed as a

percentage of a bank's risk weighted credit exposures.

Also known as Capital to Risk Weighted Assets Ratio (CRAR).

Capital adequacy is measured by the ratio of capital to risk-weighted assets (CRAR).

A sound capital base strengthens confidence of depositors.

This ratio is used to protect depositors and promote the stability and efficiency of

financial systems around the world.

1.1.3. Asset Quality

Asset quality determines the robustness of financial institutions against loss of value

in the assets. The deteriorating value of assets, being prime source of banking problems,

directly pour into other areas, as losses are eventually written-off against capital, which

ultimately jeopardizes the earning capacity of the institution. With this backdrop, the asset

quality is gauged in relation to the level and severity of non-performing assets, adequacy of

provisions, recoveries, distribution of assets etc. Popular indicators include non-performing

loans to advances, loan default to total advances, and recoveries to loan default ratios.

One of the indicators for asset quality is the ratio of non-performing loans to total

loans (GNPA). The gross non-performing loans to gross advances ratio is more indicative of

the quality of credit decisions made by bankers. Higher GNPA is indicative of poor credit

decision-making.

A. NPA: Non-Performing Assets

Advances are classified into performing and non-performing advances (NPAs) as per

RBI guidelines. NPAs are further classified into sub-standard, doubtful and loss assets based

on the criteria stipulated by RBI. An asset, including a leased asset, becomes non-performing

when it ceases to generate income for the Bank.

B.An NPA is a loan or an advance where:

Interest and/or installment of principal remains overdue for a period of more than 90

days in respect of a term loan;

1. The account remains "out-of-order'' in respect of an Overdraft or Cash Credit (OD/CC);

2. The bill remains overdue for a period of more than 90 days in case of bills purchased

and discounted.

3. A loan granted for short duration crops will be treated as an NPA if the installments of

principal or interest thereon remain overdue for two crop seasons; and

4. A loan granted for long duration crops will be treated as an NPA if the installments of

principal or interest thereon remain overdue for one crop season.

The Bank classifies an account as an NPA only if the interest imposed during any

quarter is not fully repaid within 90 days from the end of the relevant quarter.

This is a key to the stability of the banking sector. There should be no hesitation in

stating that Indian banks have done a remarkable job in containment of non-performing loans

(NPL) considering the overhang issues and overall difficult environment. For 2008, the net

NPL ratio for the Indian scheduled commercial banks at 2.9 per cent is ample testimony to

the impressive efforts being made by our banking system. In fact, recovery management is

also linked to the banks’ interest margins. The cost and recovery management supported by

enabling legal framework hold the key to future health and competitiveness of the Indian

banks. No doubt, improving recovery-management in India is an area requiring expeditious

and effective actions in legal, institutional and judicial processes.

1.1.4. Management Soundness

Management of financial institution is generally evaluated in terms of capital

adequacy, asset quality, earnings and profitability, liquidity and risk sensitivity ratings. In

addition, performance evaluation includes compliance with set norms, ability to plan and

react to changing circumstances, technical competence, leadership and administrative ability.

In effect, management rating is just an amalgam of performance in the above-mentioned

areas.

Sound management is one of the most important factors behind financial institutions’

performance. Indicators of quality of management, however, are primarily applicable to

individual institutions, and cannot be easily aggregated across the sector.

Furthermore, given the qualitative nature of management, it is difficult to judge its

soundness just by looking at financial accounts of the banks.

Nevertheless, total expenditure to total income and operating expense to total expense

helps in gauging the management quality of the banking institutions. Sound management is

key to bank performance but is difficult to measure. It is primarily a qualitative factor

applicable to individual institutions. Several indicators, however, can jointly serve—as, for

instance, efficiency measures do—as an indicator of management soundness.

The ratio of non-interest expenditures to total assets (MGNT) can be one of the

measures to assess the working of the management. . This variable, which includes a variety

of expenses, such as payroll, workers compensation and training investment, reflects the

management policy stance.

Efficiency Ratios demonstrate how efficiently the company uses its assets and how

efficiently the company manages its operations.

1.1.5. Earnings & Profitability

Earnings and profitability, the prime source of increase in capital base, is examined

with regards to interest rate policies and adequacy of provisioning. In addition, it also helps to

support present and future operations of the institutions. The single best indicator used to

gauge earning is the Return on Assets (ROA), which is net income after taxes to total asset

ratio.

Strong earnings and profitability profile of banks reflects the ability to support present

and future operations. More specifically, this determines the capacity to absorb losses,

finance its expansion, pay dividends to its shareholders, and build up an adequate level of

capital. Being front line of defense against erosion of capital base from losses, the need for

high earnings and profitability can hardly be overemphasized. Although different indicators

are used to serve the purpose, the best and most widely used indicator is Return on Assets

(ROA). However, for in-depth analysis, another indicator Net Interest Margins (NIM) is also

used. Chronically unprofitable financial institutions risk insolvency. Compared with most

other indicators, trends in profitability can be more difficult to interpret—for instance,

unusually high profitability can reflect excessive risk taking.

1.1.6. Liquidity

An adequate liquidity position refers to a situation, where institution can obtain

sufficient funds, either by increasing liabilities or by converting its assets quickly at a

reasonable cost. It is, therefore, generally assessed in terms of overall assets and liability

management, as mismatching gives rise to liquidity risk. Efficient fund management refers to

a situation where a spread between rate sensitive assets (RSA) and rate sensitive liabilities

(RSL) is maintained. The most commonly used tool to evaluate interest rate exposure is the

Gap between RSA and RSL, while liquidity is gauged by liquid to total asset ratio.

Initially solvent financial institutions may be driven toward closure by poor

management of short-term liquidity. Indicators should cover funding sources and capture

large maturity mismatches.

The term liquidity is used in various ways, all relating to availability of, access to, or

convertibility into cash.

An institution is said to have liquidity if it can easily meet its needs for cash either because it

has cash on hand or can otherwise raise or borrow cash.

A market is said to be liquid if the instruments it trades can easily be bought or sold in

quantity with little impact on market prices.

An asset is said to be liquid if the market for that asset is liquid.

The common theme in all three contexts is cash. A corporation is liquid if it has ready

access to cash. A market is liquid if participants can easily convert positions into cash—or

conversely. An asset is liquid if it can easily be converted to cash.

A.The liquidity of an institution depends on:

The institution's short-term need for cash;

Cash on hand;

Available lines of credit;

The liquidity of the institution's assets;

The institution's reputation in the marketplace—how willing will counterparty is to transact

trades with or lend to the institution?

The liquidity of a market is often measured as the size of its bid-ask spread, but this is

an imperfect metric at best. More generally, Kyle (1985) identifies three components of

market liquidity:

Tightness is the bid-ask spread;

Depth is the volume of transactions necessary to move prices;

Resiliency is the speed with which prices return to equilibrium following a large trade.

Examples of assets that tend to be liquid include foreign exchange; stocks traded in the Stock

Exchange or recently issued Treasury bonds. Assets that are often illiquid include limited

partnerships, thinly traded bonds or real estate.

Cash maintained by the banks and balances with central bank, to total asset ratio

(LQD) is an indicator of bank's liquidity. In general, banks with a larger volume of liquid

assets are perceived safe, since these assets would allow banks to meet unexpected

withdrawals.

Credit deposit ratio is a tool used to study the liquidity position of the bank. It is

calculated by dividing the cash held in different forms by total deposit. A high ratio shows

that there is more amounts of liquid cash with the bank to met its clients cash withdrawals.

CHAPTER-II

INDUSTRY PROFILE

1.2 INDUSTRY PROFILE

1.2.1 PROFILE OF CO-OPERATIVE MOVEMENT IN INDIA

Around the world modern cooperatives have developed for over 200 years.

Cooperative institutions exist all over the world providing essential services which would

otherwise be unattainable. In many Third World countries, cooperatives such as credit unions

and agricultural organizations have been very successful in helping people to provide for

themselves where private and other corporate capitals do not see high profitability. In 90

countries of the world, over 700 million individuals are members of cooperative institutions.

Globally, cooperatives have been able to elevate its position as a powerful economic model.

In some countries they are a sizeable force within the national economy.

1.2.2 GROWTH OF CO-OPERATIVE SECTOR IN INDIA

India has basically an agrarian economy with 72% of its total population residing in

rural areas. The rural people need lot of services in daily life which are met by village co-

operative societies. The seeds of cooperation in India were sown in 1904 when the first

Cooperative Societies Act was passed. Since then, the cooperative movement has made

significant progress. Cooperatives have extended across the entire country and there are

currently an estimated 230 million members nationwide.

The cooperative credit system of India has the largest network in the world and

cooperatives have advanced more credit in the Indian agricultural sector than commercial

banks. The village cooperative societies provide strategic inputs for the agricultural sector,

consumer societies meet their consumption requirements at concessional rates; marketing

societies help the farmer to get remunerative prices and co-operative processing units help in

value additions to the raw products etc. In addition, co-operative societies are helping in

building up of storage go-downs including cold storages, rural roads and in providing

facilities like irrigation, electricity, transport and health.3 Various development activities in

agriculture, small industry marketing and processing, distribution and supplies are now

carried on through co-operatives.

In fertilizer production and distribution the Indian Farmers Fertilizer Cooperative

(IFFCO) commands over 35 percent of the market. In the Production of sugar the cooperative

share of the market is over 58 percent and in the marketing and distribution of cotton they

have a share of around 60 percent. The cooperative sector accounts for 55 percent of the

looms in the hand-weaving sector. Cooperatives process, market and distribute 50 percent of

edible oils. Dairy cooperatives operating under the leadership of the National Dairy

Development Board and through 15 state cooperative milk marketing federations has now

become the largest producer of milk in the world. The groundwork for this was laid in the

early 1970's when the largest dairy development programme in the world - Operation Flood -

was launched. Operation Flood was a national marketing strategy linked to a dairy

infrastructure development programme that created a chain of dairy processing plants,

collection stations and a national milk transportation grid. With the passage of the Insurance

Act, cooperatives have been allowed to entry into the insurance business.

1.2.3 STRUCTURE COOPERATIVE CREDIT

The cooperative structure in India consists of different constituents. At the bottom of

this structure are the primary societies which render various types of services. Of this large

number about 80% is concerned with agriculture. Most of these societies, about 60% deal

with credit only. Thus a large majority of primary societies are related to agriculture and

credit. They perform various functions such things as credit, irrigation, marketing, transports

etc. These are generally divided into two groups

(i) credit societies and

(ii) non credit societies Each o f these two sub groups is further split up into sub

groups:

(a) Agricultural societies and

(b) Non –agricultural societies..

Cooperative credit structure is the single largest institutional credit delivery system in

the State. It provides credit to the people particularly in rural areas at reasonable interest rate

thereby reducing the dependency of the farmers on the informal credit source and usurious

rate of interest. Geographically and culturally it is the most convenient institutional

arrangement for availing the credit by farmers.

The cooperative credit structure in Tamil Nadu comprises of the following:

(A) Short term and medium term credit structure consisting of Tamil Nadu State Apex

Cooperative Bank at the state level, Central Cooperative Banks at the district level and

Primary Agricultural Cooperative Banks at the village level.

(B) Long term rural credit structure consisting of Tamil Nadu Cooperative State Agriculture

and Rural Development Bank at the state level and Primary Cooperative Agriculture and

Rural Development Banks at taluk/block level.

(C) Urban credit structure comprising of Cooperative Urban Banks located in the urban and

semi urban areas and catering to the credit needs of their members and the public.

(A) Short Term Credit Structure

The Short Term Cooperative credit structure in Tamil Nadu is a three tier structure

with Tamil Nadu State Apex Cooperative Bank at State level with 45 branches, 23 District

Central Cooperative Banks at the district level with 717 branches and 4474 Primary

Agricultural Cooperative Banks at the grass root level.

(i) Tamil Nadu State Apex Cooperative Bank (TNSACB) Chennai

The Tamil Nadu State Apex Cooperative Bank is the federation of the District Central

Cooperative Banks. Being the Apex Bank, it raises resources and channelises them through

District Central Cooperative Banks for both agricultural and non-agricultural purpose. It also

channelises the refinance provided by National Bank for Agriculture and Rural Development

(NABARD) towards short term and medium term agriculture and allied sector loans to

District Central Cooperative Banks.

As on 29.2.2008, the Tamil Nadu State Apex Cooperative Bank has a share capital of

Rs.61.07 crores including Government’s share of Rs.0.26 crore. It has the reserves of

Rs.700.48 crores and deposits of Rs.3944.98 crores. Compared to the previous year’s level of

reserves at Rs.517.95 crores and deposits at Rs.3263.50 crores, the growth in the reserves and

the deposits in the current year have gone up by 35% and 21% respectively. The bank has

earned a net profit of Rs.42.80 crores during 2007-2008 upto 29.2.2008.

The Tamil Nadu State Apex Cooperative Bank maintains a fund called the Primary

Cooperative Development Fund financed out of contribution of profit making Central

Cooperative Banks and the Tamil Nadu State Apex Cooperative Bank. The fund is utilized to

strengthen the infrastructure facilities of the Primary Agricultural Cooperative Banks in the

State. As on 29.2.2008, Rs.29.84 crores is available in this account. A special scheme was

launched by Hon’ble Chief Minister Dr. Kalaignar to rejuvenate about 1192 weak Primary

Agricultural Cooperative Banks with the help of this fund. Most of the societies in the above

category had fallen dormant because of lack of resources and had stopped lending and other

operations. To help them to restart lending, a special cash credit at the rate of Rs.20 lakhs per

society is being provided by District Central Cooperative Banks at a concessional rate of

interest and the difference between cost of funds and the concessional rate is being

reimbursed to District Central Cooperative Banks from out of this fund. It is expected that

these 1192 Primary Agricultural Cooperative Banks through this scheme will resume their

normal operation of lending and to become financially viable in a course of 3 years, by

securing breakeven level of business and through this, will offer adequate institutional credit

to the farmers in their area of operation. As on 29.2.2008, 631 Primary Agricultural

Cooperative Banks have been sanctioned with cash credit to the tune of Rs.126.20 crores and

the entire 1192 Primary Agricultural Cooperative Banks will be covered under this scheme

before April, 2008.

(ii) District Central Cooperative Banks (DCCB)

There are 23 District Central Cooperative Banks in the State with 717 branches

mostly in rural areas to serve the Primary Agricultural Cooperative Banks and the rural

public. The District Central Cooperative Banks raise resources through public deposits and

also from Tamil Nadu State Apex Cooperative Bank and channelise them through Primary

Agricultural Cooperative Banks for agriculture and rural credit. In addition, they meet the

credit needs of dairy, handlooms, sugar and such other affiliated cooperatives. They also lend

directly to the public for non-agricultural purposes within the area of operation of their

branches.

As on 26.3.2008, the District Central Cooperative Banks have extended credit to

Primary Agricultural Cooperative Banks to the tune of Rs.1323.20 crores for crop loan of

which Rs.985.59 crores is from their own funds and Rs.337.61 crores from National Bank for

Agriculture and Rural Development refinance.

The details of District Central Cooperative Banks’ activities are given below:-

(Rs. in crores)

Year Deposits Direct Loans

2004-05 6275.78 1778.12

2005-06 6979.34 2005.33

2006-07 7286.62 2973.02

2007-08* 7666.70 3292.53

* As on 29.2.2008

Compared to the last year, upto February 2008 the amounts of deposit have increased

by 5.22%. Due to concerted efforts, better financial discipline and also adequate credit flow

through waiver, as per final audit of the year 2006-2007, out of 12 District Central

Cooperative Banks which were classified under Section 11(1) of Banking Regulation Act

with negative net worth, 7 District Central Cooperative Banks have come out of this problem

and it is expected that remaining 5 District Central Cooperative Banks also will record

positive networth and come out of Section 11(1) by 31.3.2009. Efforts are being made to

computerize all the branches of the District Central Cooperative Banks.

(iii) Primary Agricultural Cooperative Banks (PACB)

In Tamil Nadu, there are 4474 Primary Agricultural Cooperative Banks which provide

credit to the farmers, distribute inputs like fertilizers and also run outlets under Public

Distribution System. These banks provide short term and medium term credit for agriculture

and allied activities. The short term loans are repayable within a period of 12 to 15 months

and the medium term loans are repayable within 3 to 5 years.

Crop loan is the prominent item of credit to the farmers by Primary Agricultural

Cooperative Banks, provided without collateral security upto 10 acres in respect of registered

sugarcane growers and upto Rs.1 lakh in respect of other crops. The loan amount exceeding

this limit is secured with mortgage of property or pledge of jewels. Primary Agricultural

Cooperative Banks also issue loans for other agricultural purposes like purchase of farm

machineries and for non-agricultural purposes including loans for the purchase of consumer

durables, housing loans, education loans and professional loans.

The details of the loans issued by these banks from 2004-05 are furnished below:

(Rs. In crores)

Year Crop Loans Other Loans

2004-05 1080.58 2609.07

2005-06 1132.18 2718.69

2006-07 1250.62 3082.20

2007-08 1323.20 3254.68

(As on

26.3.2008)

(As on

29.2.2008)

 

Considering the importance of increasing credit flow into the agriculture sector,

Government has reduced the interest rate for the crop loans from 9% to 7% per annum from

2006-07, the interest differential being compensated by the Government. For the year 2006-

07, Rs.18.28 crores was released and a sum of Rs.15.04 crores has been released for the year

2007-08 to the cooperatives as compensation to make up this interest subvention.

The Government is taking all efforts to inculcate the habit of financial discipline

among the farmers. As a special measure, Government have announced further reduction of

interest from 7% to 5% for all crop loans being repaid promptly by the farmers. This has been

further reduced to 4% in 2008-09.

The Government lays emphasis on the timely disbursement of crop loan in adequate

quantity. It is proposed to disburse Rs.1500 crores as crop loan during 2008-09. It is further

proposed that the lending through Farmers Group will be encouraged by forming Joint

Liability Groups which will benefit the farmers to get additional assistance by way of

revolving fund to the tune of Rs.10 crores. This is expected to benefit the farmers in a great

way to consolidate themselves and pool their resources in arranging their inputs supply,

organizing cultivation activities and making joint efforts in marketing to fetch a better price

for their produce. Ultimately this will pave way for consolidation of the farming activities by

the farmers facilitating appropriate technological intervention for improving the productivity

of the farm sector.

As a policy, this Government is not for liquidation of any Primary Agricultural

Cooperative Bank which has been set up for the specific purpose of serving the farmers in

their respective operational areas. Though liquidation notices were issued for 199 Primary

Agricultural Cooperative Banks upto 2005-06, as a follow-up of the announcement made in

the year 2006-07 to revive them, all out efforts have been made to revive them and bring

them back to normalcy. The Government is happy to inform that out of 199 banks, 197 banks

have already been revived and an amount of Rs.17.23 crores were issued as loans during

2006-07 to the members. During 2007-08, Rs.13.07 crores were disbursed as loans upto

29.2.2008. The efforts of the Government will continue for reviving the remaining two

Primary Agricultural Cooperative Banks.

Due to long years of neglect, several societies have been put into doldrums. The

pathetic status of some of the societies have forced them not to pay even the salaries to their

own employees for many months. Due to the efforts made by this Government, the condition

of many of the societies have appreciably changed. Due to initiatives such as waiver of

agricultural loan, revival of societies through the assistance from Primary Cooperative

Development Fund (PCDF), subsidy for running public distribution system and through

various other measures, the business of the societies have improved and the non payment of

salary has been brought down significantly. The Government will continue its efforts to

ensure that all the societies become financially viable and no employee in any of the societies

goes without salary.

The Primary Agricultural Cooperative Banks were permitted to mobilize deposits

from the public for issue of loans and were unable to refund the deposits on due dates of

maturity to the depositors by the Primary Agricultural Cooperative Banks. If this chronic

problem continues then the confidence of the people will be shaken. This Government have

made all out efforts to ensure that the depositors credibility is restored and their matured

deposit amount with the interest is paid back to them. In this regard, an amount of Rs.170.62

crores as public deposit was pending on 30.6.2006 due to be refunded to the depositors. A

promise was made in the Assembly that efforts will be taken to settle these deposits at the

earliest. Due to the initiatives taken by the Government, Primary Agricultural Cooperative

Banks were able to refund Rs.117.68 crores as on 29.2.2008 and further efforts are being

made to refund the entire amount fully with due interest to the depositors.

This Government considers that Primary Agricultural Cooperative Banks are the

fulcrum on which integrated package of services such as credit, insurance, inputs, marketing

and extension can be delivered to the farmers. Recognising the importance of increasing

productivity in agricultural sector as envisaged in the XI Five Year Plan, Primary

Agricultural Cooperative Banks will be actively engaged in provision of integrated service to

the farmers and serve as a point of dissemination of the technology and the improved

cultivation practices. It is expected to increase the prosperity of farmers by availing better

services particularly in the area of technological intervention. In this process, Primary

Agricultural Cooperative Banks will actively collaborate with Agriculture Department and

the Research & Development organisations and provide all inputs and services under one

roof.

The Primary Agricultural Cooperative Banks will also act as Paddy Procurement

Centres on behalf of Tamil Nadu Civil Supplies Corporation and will procure paddy at the

minimum support price announced by the Government in the non delta areas apart from

Direct Purchase Centres operated by Tamil Nadu Civil Supplies Corporation. Primary

Agricultural Cooperative Banks will also assist the Cooperative Marketing Societies, Tamil

Nadu Cooperative Marketing Federation and National Agricultural Cooperative Marketing

Federation of India (NAFED) to procure the agricultural produce directly from the farmers.

Primary Agricultural Cooperative Banks will expand their produce pledge loan operations

substantially to prevent distress sale by the farmers during peak harvest. A target of Rs. 100

crores will be set for disbursal under produce pledge loan by Primary Agricultural

Cooperative Banks in 2008- 09.

Most of the Primary Agricultural Cooperative Banks are operating under manual

system of record maintenance and face a serious threat from the new generation banks using

latest banking technology to penetrate the rural areas. To counter such threat, state-of-art

banking technology will be introduced and all the Primary Agricultural Cooperative Banks

will be computerized by the end of 2008.

(B) Long Term Credit Structure

Long Term Cooperative Credit Structure consists of Apex Bank viz., Tamil Nadu

Cooperative State Agriculture and Rural Development Bank, Chennai and 180 Primary

Cooperative Agriculture and Rural Development Banks at taluk/block levels. These credit

institutions are providing investment credit to the members for activities like minor irrigation,

horticulture, plantation crops and other agriculture and allied sectors.

(i) Tamil Nadu Cooperative State Agriculture & Rural Development Bank

(TNCSARDB)

The Tamil Nadu Cooperative State Agriculture and Rural Development Bank raises

the funds necessary for its lending by floating ordinary and special development debentures.

As the National Bank for Agriculture and Rural Development refinance could not be availed

from 2004, due to National Bank for Agriculture and Rural Development’s insistence on

automatic debit mechanism, Tamil Nadu Cooperative State Agriculture and Rural

Development Bank could not make available required resources to Primary Cooperative

Agriculture and Rural Development Banks for lending to agricultural sector. As on today the

Bank is extending small quantum of loans for Non-Farm Sector using its own resources. As

on 29.2.2008, the share capital of the Bank stood at Rs. 40.29 crores and reserves Rs.566.10

crores and deposits Rs.1.19 crores. Due to virtual suspension of lending operations, the bank

is in cumulative loss of Rs.143.84 crores as on 29.2.08.

(ii) Primary Cooperative Agriculture and Rural Development Banks (PCARDB)

There are 180 Primary Cooperative Agriculture and Rural Development Banks at

taluk/block levels. The Primary Cooperative Agriculture and Rural Development Banks

provide long term credit for purposes like minor irrigation, land development, purchase of

agricultural machineries, horticulture, animal husbandry and other allied activities. The

period of repayment of such loans ranges from 5 to 15 years.

Due to non-availability of refinance from National Bank for Agriculture and Rural

Development, the lending activity by these Banks is practically nil for the last four years.

During 2007-08, efforts were made to revive the activities of Tamil Nadu Cooperative State

Agriculture and Rural Development Bank and Primary Cooperative Agriculture and Rural

Development Banks by mobilizing resources through collection of overdues in Non-Farm

Sector. From 1.4.2007 till 29.2.2008, Rs.72.91 crores was collected as against the overdue of

Rs.278.43 crores under the Non-Farm Sector. Further through waiver, an amount of Rs.42.45

crores each for the year 2006-07 and 2007-08 were released to the long term credit structure

as waiver compensation. This has increased the liquidity of both Tamil Nadu Cooperative

State Agriculture and Rural Development Bank and Primary Cooperative Agriculture and

Rural Development Banks.

1.2.4 TYPES OF COOPERATIVES

(1)The Primary Agricultural Credit/Service Societies

The agricultural co-operative credit structure in the Punjab State is broadly divided into

two sectors, one dealing with the short-terms and medium-terms finance and the other with the

long-term credit. In the State, the short-term and medium-term credit structure is based on a

three-tier system, i.e., the Apex Co-operative Bank at the State level, the Central Co-Coperative

Bank at the district/tehsil level and the Primary Agricultural Credit Societies at the village level.

The major objectives of the primary agricultural credit service societies are to supply agricultural

credit to meet the requirements of funds for agricultural production, the distribution of essential

consumer commodities, the provision of storage and marketing facilities and for light agricultural

implements and machinery.

(2) Agricultural Non-Credit Societies

While credit is and must remain for some time the chief concern of the Co-operative

Movement relatively slow, since 1912, when the non-credit societies were brought officially

under the aegis of the Movement. the World War II (1939-45) came as a God send boon with

respect to the development of the Cooperative Movement. Prices of agricultural goods began to

rise and touched new peaks. The repayment of loans was accelerated and deposits began to pour

in. The number of societies also rose. Another interesting development in co-operative during the

War wast the extension of the Movement to non-credit activities, viz. consumer’s co-operative

marketing societies, consolidation societies, etc. The number of agricultural non-credit societies

in the district was 38 in 1978-79.

(3) Agricultural co-operative Marketing Societies

Marketing has occupied a far smaller place in the co-operative picture in India than in

many countries, notably Denmark and the USA, but not other non-credit line of co-operation,

with the possible exception of the consolidation of land holdings and joint farming enterprises,

seems to hold greater possibilities of help to the agricultural population of India. The

development of co-operative marketing in India is closely bound up with the problem of credit-

the claims of the money-lenders commonly inhibiting the cultivator’s freedom of action in

disposing of his crop. The full utilization of loans advanced depends upon the arrangements for

the marketing of surplus produce. For this purpose, there the Punjab State Marketing Federation

at the State Level, wholesale societies at the district level and marketing societies at the market

level. These societies also provide other agricultural facilities and make arrangements for the

supply of domestic items in the rural areas.

(4) Co-operative Farming Societies.

The Royal Commission on Agriculture in 1928 observed that it co-operation failed, there

would fail the hope of the Indian agriculturist. Co-operative farming is a compromise between

collective farming and the peasant proprietorship and gives all merits of large-scale farming

without abolishing private property. It implies an organization of the farmers on the basis of

common efforts for common interests. They are allowed to withdraw from the cooperative farm

whenever they desire. In India, the exceedingly small size of holdings is perhaps the most serious

defect in our agriculture. If agriculture has to be improved, the size of the holdings must be

enlarged. The co-operative farming societies, thus, enable the cultivators to enjoy the economies

of large-scale farming through the pooling of land management resources.

1.3 COMPANY PROFILE

1.3.1 INTRODUCTION:

Bank is an institution that deals in money and its substitutes and provides crucial

financial services. The principal type of baking in the modern industrial world is commercial

banking & central banking.

Banking Means "Accepting Deposits for the purpose of lending or Investment of

deposits of money from the public, repayable on demand or otherwise and withdraw by

cheque, draft or otherwise."

-Banking Companies (Regulation) Act, 1949

The concise oxford dictionary has defined a bank as "Establishment for custody of

money which it pays out on customers order." Infact this is the function which the bank

performed when banking originated.

"Banking in the most general sense, is meant the business of receiving, conserving &

utilizing the funds of community or of any special section of it."

-By H.Wills & J. Bogan

"A banker of bank is a person, a firm, or a company having a place of business where

credits are opened by deposits or collection of money or currency or where money is

advanced and waned.

-By Findlay Sheras

Thus a Bank:

Accept deposits of money from public,

Pays interest on money deposited with it.

Lends or invests money

Repays the amount on demand,

1.3.2 CLASSIFICATION ON BASIS OF OWNERSHIP:

On the basis of ownership banks are of the following types:

1. PUBLIC SECTOR BANK

Public sector banks are those banks which are owned by the Government. The Govt.

runs these Banks. In India 14 banks were nationalized in 1969 & in 1980 another 6 banks

were also nationalized. Therefore in 1980 the number of nationalized bank 20. But at present

there are 9 banks are nationalized. All these banks are belonging to public sector category.

Welfare is their principle objective.

2. PRIVATE SECTOR BANKS

These banks are owned and run by the private sector. Various banks in the country

such as ICICI Bank, HDFC Bank etc. An individual has control over their banks in

preparation to the share of the banks held by him.

3. CO-OPERATIVE BANKS

Co-operative banks are those financial institutions. They provide short term &

medium term loans to their members. Co-operative banks are in every state in India. Its

branches at district level are known as the central co-operative bank. The central co-operative

bank in turn has its branches both in the urban & rural areas.

Every state co-operative bank is an apex bank which provides credit facilities to the

central co-operative bank. It mobilized financial resources from richer section ourban

population by accepting deposit and creating the credit like commercial bank and borrowing

from the money mkt. It also gets funds from RBI.

1.3.3 ACCORDING TO RESERVE BANK OF INDIA ACT 1935

Banks are classified into following two categories son the basis of reserve bank Act.

1934.

1. SCHEDULED BANK

These banks have paid up capital of at least Rs. 5 lacks. These are like a joint stock

company. It is a co-operative organization. These banks find their mention in the second

schedule of the reserve bank.

2. NON SCHEDULED BANK

These banks are not mentioned in the second schedule of reserve bank paid up capital

of these banks is less then Rs.5 lacks. The no. such bank is gradually tolling in India.

1.3.4 FUNCTIONS OF BANKS

o PRIMARY FUNCTIONS

i. Acceptance of Deposits

ii. Making loans & advances

iii. Loans

iv. Overdraft

v. Cash Credit

vi. Discounting of bills of exchange

o SECONDARY FUNCTIONS

Agency functions

Collection of cheques & Bills etc.

Collection of interest and dividends.

Making payment on behalf of customers

Purchase & sale of securities

Facility of transfer of fund

o UTILITY FUNCTIONS:

Safe custody of customer’s valuable articles & securities.

Underwriting facility

Issuing of traveler’s cheques letter of credit

Facility of foreign exchanges

Providing trade information

Provide information regarding credit worthiness of their customer.

1.4 CLASSIFICATION ACCORDING TO FUNCTION

On the basis of functions banks are classified as under:-

1. COMMERCIAL BANKS

The commercial banks generally extend short-term loans to businessmen & traders.

Since their deposits are for a short-period only. They cannot lend money for a long period.

These banks reform various types or agency job for their customers. These banks are not in a

position to grant long-term loans to industries because their deposits are only for a short

period. The majority of joint stock banks in India are commercial banks which finance trade

& commerce only.

2. SAVING BANKS

The principle function of these banks is to collect small saving across the country and put

them into productive use. These banks have shown marked development in Germany &

Japan. These banks are established in HAMBURG City of Germany in 1765. In India a

department of post offices functions as saving banks.

3. FOREIGN EXCHANGE BANKS

These are special types of banks which specialize in financing foreign trade. Their

main function is to make international payments through purchase & sale of exchange bills.

As it well known, the exporters of a country prefer to receive the payments for exports in

their own currency. Thus these banks convert home currency into foreign currency and vice

versa. It is on this account that these banks have to keep with themselves stock of the

currency of various countries. Along with that, they have to open branches in foreign

countries to carry on their business.

4. INDUSTRIAL BANKS

The industrial banks extend long term loans to industries. In fact, they also help

industrials firms to sell their debentures and shares. Sometimes, they even underwrite the

debentures & shares of big industrial concerns.

5. INDIGENOUS BANKS

These banks found their origin in India. These banks made a significant contribution

to the development of agricultural and industries before independence. Mahajans, rural

moneylenders have been the forerunner of these banks in India.

6. CENTRAL BANK

The central bank occupies a pivotal position in the monetary and banking structure of

the country. The central bank is the undisputed leader of the money market.

As such it supervises controls and regulates the activities of commercial banks

affiliated with it. The central bank is also the higher monetary institution in the country

charged with the duty & responsibility of carrying out the monetary policy formulated by

the government. India's central bank known as the reserve bank of India was set up in 1935.

7. AGRICULTURAL BANK

The commercial and the industrial banks are not in a position to meet the credit

requirements of agriculture. Hence, there arises the need for setting up special type of banks

of finance agriculture. The credit requirements of the farmers are two types. Firstly the

farmers require short term loans to buy seeds, fertilizers, ploughs and other inputs. Secondly,

the farmers require long-term loans to purchase land, to effect permanent improvements on

the land to buy equipment and to provide for irrigation works.

There are two types of agriculture banks.

1. Agriculture co-operative banks, and

2. Land mortgage banks. The farmer provides short-term credit, while the letter extends

long-term loans to the farmers.

1.4.1 ORIGIN OF BANKING:

Its origin in the simplest form can be traced to the origin of authentic history. After

recognizing the benefit of money as a medium of exchange, the importance of banking was

developed as it provides the safer place to store the money. This safe place ultimately evolved

in to financial institutions that accepts deposits and make loans i.e., modern commercial

banks.

1.4. 2 BANKING SYSTEM IN INDIA

Historical perspective:

Early phase from 1786-1969. Nationalization of banks and up to 1991 prior to

banking sector reforms. New phase of Indian banking with the advent of financial banking.

Banking in India has its origin as early or Vedic period. It is believed that the transitions from

many lending to banking must have occurred even before Manu, the great Hindu furriest,

who has devoted a section of his work to deposit and advances and laid down rules relating to

the rate of interest. During the mogul period, the indigenous banker played a very important

role in lending money and financing foreign trade and commerce. During the days of the East

India Company it was the turn of agency house to carry on the banking business. The General

Bank of India was the first joint stock bank to be established in the year 1786. The other

which followed was the Bank of Hindustan and Bengal Bank. The Bank of Hindustan is

reported to have continued till 1906. While other two failed in the meantime.

In the first half of the 19th century the East India Company established there banks,

the bank of Bengal in 1809, the Bank of Bombay in 1840 and the Bank of Bombay in1843.

These three banks also known as the Presidency banks were the independent units and

functioned well. These three banks were amalgamated in 1920 and new bank, the Imperial

Bank of India was established on 27th January, 1921.

With the passing of the State Bank of India Act in 1955 the undertaking of the

Imperial Bank of India was taken over by the newly constituted SBI. The Reserve Bank of

India (RBI) which is the Central bank was established in April, 1935 by passing Reserve

bank of India act 1935. The Central office of RBI is in Mumbai and it controls all the other

banks in the country. In the wake of Swadeshi Movement, number of banks with the Indian

management were established in the country namely, Punjab National Bank Ltd., Bank of

India Ltd., Bank of Baroda Ltd., Canara Bank. Ltd. on 19th July 1969, 14 major banks of the

country were nationalized and on 15th April 1980, 6 more commercial private sector banks

were taken over by the government.

1.4.3.COOPERATION:

There are 4,595 Primary Agricultural Cooperative Banks at the village level,

providing short term and medium term credit facilities to the agriculturists.

These banks have covered as on 31.3.02 85.96% of the agricultural operational

holdings in the State of which 79.57% belong to weaker sections.

A co-operative bank is a financial entity which belongs to its members, who are at the

same time the owners and the customers of their bank. Co-operative banks are often created

by persons belonging to the same local or professional community or sharing a common

interest. Co-operative banks generally provide their members with a wide range of banking

and financial services (loans, deposits, banking accounts…). In India co-operative banks are

regulated with the RBI and governed by Banking Regulations Act 1949 and Cooperative

Societies Act, 1965

The Bank was formed in 1872 in the city Manchester in UK. The Co-operative banks

in INDIA have a history of almost 100 years. The Cooperative banks are an important

constituent of the Indian Financial System. Co operative Banks in India are registered under

the Co-operative Societies Act. The cooperative bank is also regulated by the RBI. They are

governed by the Banking Regulations Act 1949 and Banking Laws (Co-operative Societies)

Act, 1965. These banks were conceived as substitutes for money lenders.

Co-operative bank performs all the main banking functions of deposit mobilization,

supply of credit and provision of remittance facilities. Co-operative Banks belong to the

money market as well as to the capital market. Co-operative Banks provide limited banking

products and are functionally specialists in agriculture related products. However, co-

operative banks now provide housing loans also. UCBs provide working capital loans and

term loan as well.

1. Customer-owned entities: In a co-operative bank, the needs of the customers meet the needs

of the owners, as co-operative bank members are both.

2. Democratic member control: Co-operative banks follow the principle of “one person,

one vote”.

3. Profit allocation: Profit is usually allocated to members who are related to the

number of shares subscribed by each member.

Co-operative bank do banking business mainly in the agriculture and rural sector.

However, UCBs, SCBs, and CCBs operate in semi urban, urban, and metropolitan areas

also

The State Co-operative Banks (SCBs), Central Cooperative Banks (CCBs) and Urban

Co-operative Banks (UCBs) can normally extend housing loans up to Rs 1 lakh to an

individual. The scheduled UCBs, however, can lend up to Rs 3 lakh for housing purposes.

Agricultural co-operative society:

An agricultural cooperative, also known as a farmers' co-op, is a cooperative where

farmers pool their resources in certain areas of activity. A broad typology of agricultural

cooperatives distinguishes between agricultural service cooperatives, which provide various

services to their individually farming members, and agricultural production cooperatives,

where production resources (land, machinery) are pooled and members farm jointly

1.4.4 PROFILE OF THE CO OPERATIVE CREDIT SOCIETY

An agricultural cooperative, also known as a farmer’s co-op, is a cooperative where

farmers pool their resources in certain areas of activity. A broad typology of agricultural

cooperatives distinguishes between agricultural service cooperatives, which provide various

services to their individually farming members, and agricultural production cooperatives,

where production resources (land, machinery) are pooled and members farm jointly.

Examples of agricultural production cooperatives include collective farms in former socialist

countries, the kibbutzim in Israel, collectively governed community shared agriculture,

Longo Mai co-operatives and Nicaraguan production co-operatives. Worker cooperatives

provide an example of production cooperatives outside agriculture

PERCENTTAGE ANALYSIS

Current ratio

Cash Position Ratio

Debtors to Total Current Assets Ratio

Net Profit Ratio

Gross Profit Ratio

Stock Turnover Ratio

Debtor Turnover Ratio

Current Assets Turnover Ratio

Total Assets Turnover Ratio

Operating Profit Ratio

Return on Equity Share Capital of Ratio

2.1.4.3 Current Ratio

This ratio shows the relationship between current assets and current liability of the company. It

is an important measure of analyzing the firm’s ability to pay off its current obligations out of its

short-term resources

2.1.4.4 Cash Position Ratio

This ratio is also known as super quick ratio/Absolute liquidity ratio. This is still a more vigorous

test of liquidity position of a concern

Cash

Cash Position Ratio= -------------------------

Current Liabilities

2.1.4.5 Debtors to Total Current Assets Ratio

A metric used to measure a company's financial risk by determining how much of the

company's assets have been financed by debt. Calculated by adding short-term and long-term

debt and then dividing by the company's total assets.

Debtor

Debtors to Total Current Assets Ratio= ------------------------

Total Current Assets

2.1.4.6 Net Profit Ratio

The two basic components of the net profit ratio are the net profit and sales. The net

profits are obtained after deducting income-tax and, generally, non-operating expenses and

incomes are excluded from the net profits for calculating this ratio.

Net profit

Net profit ratio =---------------

Sales

2.1.4.7 Gross Profit Ratio

A financial metric used to assess a firm's financial health by revealing the proportion

of money left over from revenues after accounting for the cost of goods sold. Gross profit

margin serves as the source for paying additional expenses and future savings.

Gross profit

Gross profit ratio=-----------------

Sales

2.1.4.8 Stock Turnover Ratio

Stock turn over ratio and inventory turn over ratio are the same.. Stock turn over ratio /

Inventory over ratio indicate the number of time the stock has been turned over during the

period and evaluates the efficiency with which a firm is able to manage its inventory. This

ratio indicates whether investment in stock is within proper limit or not.

Cost Of Goods Sold

Stock Turnover Ratio=------------------------------

Average Stock At Cost

2.1.4.9 Debtor Turnover Ratio

This ratio throws light on the credit and collection policy pursued by concern. DTR is an

important tool of analyzing the efficiency of liquidity management of a company

Net sales

Debtor Turnover Ratio=-----------------

Debtor

2.1.4.10 Current Assets Turnover Ratio

Current Assets Turnover Ratio indicates that the current assets are turned over in the form

of sales more number of times. A high current assets turnover ratio indicates the capability of

the organization to achieve maximum sales with the minimum investment in current assets.

Higher the current ratio better will be the situation.

Current Assets

Current Assets Turnover Ratio=--------------------

Total Assets

2.1.4.11 Total Assets Turnover Ratio

Total Assets Turnover Ratio (TATR) is used to measure the firm's ability to utilize its

assets to generate sales. It is an indication to the firm's operation efficiency. A lower ratio

means inefficient utilization of assets.

Sales

Total Assets Turnover Ratio=----------------

Total Assets

2.1.4.12 Operating Profit Ratio

The profit earned from a firm's normal core business operations. This value does not

include any profit earned from the firm's investments (such as earnings from firms in

which the company has partial interest) and the effects of interest and taxes.

Operating Profit

Operating Profit Ratio=----------------------------------

Sales

2.1.4.13 Return on Equity Share Capital of Ratio

The amount of net income returned as a percentage of shareholders equity. Return on

equity measures a corporation's profitability by revealing how much profit a company

generates with the money shareholders have invested

Net Profit after Tex

Return on Equity Share Capital of Ratio=------------------------------

Equity share capital

STATISTICAL ANALYSIS

Correlation

Trend Analysis

Spearman’s rank

Compound Annual Growth Rate

Current Assets Position

OBJECTIVE OF THE STUDY

To do an in-depth analysis of the model.

To analyze and get the desired results by using CAMELS as a tool of measuring

performance.

To analyze the performance of the PACCS Ltd for a specific period. (ie. Year from

2005 -2012)

To analysis liquidity position of the PACCS Ltd.

To study on Working capital of the PACCS Ltd.

SCOPE OF THE STUDY

“To study the strength of using CAMELS framework as a tool of performance

evaluation of PACCS Ltd..”

In order to find the performance of the PACCS Ltd., various tools have been used.

But to find the performance in sharply the CAMEL is taken as one of the analysis. In this

study the methods Capital adequacy, Asset quality, Management, Earnings and Liquidity are

used.

The study has been under taken for a period from 2005 – 2012 ( 7 Years) . The future

plans covers should be laid in view of firm’s financial strengths and weakness by properly

establishing the relationship between the items of balance sheet and profit and loss account.